Many small business owners are not qualified accountants, but they have to handle the accounting for their business anyway. This does not have to be an uphill struggle when you know what to keep an eye on.
Here are 6 tips to handle some common accounting challenges for small businesses.
1. Payroll Management
If your business has employees that you pay, a payroll management software can help you stay organized with exact records of hours worked by employees. Lack of clear records can lead to erroneous information and potentially disgruntled employees who have to check about the missing hours on their paycheck. These problems can be avoided with a payroll management software.
2. Clear Records
Stay as organized as possible with clear records. This will help you avoid mistakes and penalties due to errors. Create separate binders for your employees, clients, vendors and expenses with sub-categories if needed. The same rule applies to digital records to make tracking business details as easy as possible. This spans invoices and how employees handle routine tasks. Without clear records and proper organization, your business can easily flounder. So ensure that you take this step early on.
3. Revenue Generation
Many small businesses struggle with revenue generation that covers all expenses. One aspect of this issue is that revenue may not be steady in the early stages of a business. So when launching a business it is a good idea to have a few potential clients lined up. They key here is to turn one-time customers into repeat customers for consistent revenue generation. Although it may seem obvious, small business owners can get so bogged down with other aspects of their business that they neglect this detail, only to face trouble at a later stage.
4. Tax Payment
Tax returns must be filed every year to avoid problems with the IRS. Consulting a tax accountant can help as taxes for small businesses can vary across states. There are also requirements based on your business structure, amount of revenue generated, and so on. Failure to abide by tax laws can result in expensive IRS fines and penalties. In case filing tax is outside your comfort zone, you can always hire someone to file for you. This can save you thousands of dollars from failure to file your tax returns properly.
5. Expense Tracking
Expense tracking basically comes down to monitoring what you are spending money on. Needless to say, if your expenses exceed the money your business brings in, your business will struggle to stay afloat. If you find yourself in such a situation, drastic slashing of expenses and even layoffs can be last resorts to salvage the business. To avoid such a situation, make sure you stay organized and track your expenses. A good bookkeeping software such as QuickBooks can ease the task of doing so. It can even help you identify ways to reduce expenses thanks to the visibility it provides.
6. Book Reconciliation
Ideally, books should be closed regularly on a weekly or even a daily basis. Depending on your schedule, even a monthly reconciliation is far better than no periodic reconciliations. This is an essential task for correctly deciphering your business data and avoiding an IRS tax audit. Although it can seem like a chore, practice builds habit and once you get into the routine of periodic book reconciliation, it will save you a bigger headache at a later stage.
These tips cover most of the common challenges faced by small business owners. Pay attention to them early on so they don’t snowball into bigger problems that can hit your business hard. With a little practice, they will become routine so your business can function smoothly with no accounting hiccups.